The Impact of Financial Development on Energy Consumption: Evidence from an Oil-Rich Economy

Shahriyar Mukhtarov (), Jeyhun I. Mikayilov, Jeyhun Mammadov and Elvin Mammadov
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Jeyhun I. Mikayilov: King Abdullah Petroleum Studies and Research Center, P.O. Box 88550, Riyadh 11672, Saudi Arabia
Jeyhun Mammadov: Department of Economics and Management, Khazar University, 41 Mehseti Str., Baku AZ1096, Azerbaijan
Elvin Mammadov: Department of Economics and Management, Khazar University, 41 Mehseti Str., Baku AZ1096, Azerbaijan

Energies, 2018, vol. 11, issue 6, 1-14

Abstract: This paper examines the relationship between energy consumption, financial development, and economic growth in an oil-rich economy—Azerbaijan—employing cointegration techniques to the data ranging from 1992 to 2015. The results confirm the existence of a long-run relationship among the variables. Also, we find that there is a positive and statistically significant impact of financial development and economic growth on energy consumption in the long-run. The positive and statistically significant coefficient of financial development and decreasing volatility in the proxy for financial development over time can be considered as improvements in the financial system. Estimation results show that a 1% increase in financial development, proxied by the private credit indicator, and economic development increases energy consumption by 0.19% and 0.12%, respectively. The positive and significant impact of financial development on energy consumption on the backdrop of relatively cheaper energy prices due to rich oil and gas resources, should be considered by policymakers in their energy use, financial development, and economic growth related decisions.

Keywords: Energy consumption; financial development; economic growth; VECM; Azerbaijan (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (24)

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